All Forum Posts by: David Edwards

Hello all!

Any Idea how I can find long term financing partners, ideally equity based where we would split home ownership and the cashflow? I am open to discussing long term note financing as well.

For a partner funding the $80,000 for acquisition, rehab, and light furnishing and receiving 50% of the cashflow (call it $800 a month on average) this is an annual return of 12% and backed by the equity in the home. Does that seem fair? Any suggestions how I could strengthen the offer?

On one single family home (see actual numbers below) I pull in 4-6x the cashflow of $200 per door we often hear we should expect, I am looking for partners to work with me to expand this performance.

Total cash costs for Acquisition (20% down payment & other fees), Rehab, and light furnishing of the common areas and each bedroom for this home came to $80,000. Other homes would be expected to be in the $70,000 - $100,000 range for these same components with the balance of the mortgage held by a bank.

Below are actual revenue, expense, and NOI numbers for this home which we would use as a model for further acquisitions.

Property Management is high, it costs a bit to manage the placement of multiple tenants, handling of disputes, and collection of rents as well as mange the cleaners, landscapers, and handymen.

The 2.5% for maintenance, and 5% for capital expenses would be variable but should not be much higher than 5%. Keep in mind this is based on gross revenue and our gross revenue is very high at $5,000 with full occupancy. As an FYI, the home was fulling covering all bills with 3 out of 8 bedrooms rented due to the variable nature of most of these costs.

In July we had a tenant turn over and some late payments captured in August.

Thanks!

@Lauren Cutchen

Ha I just zoomed in on your picture :-) yes, talk soon!

Hello all,

A bit of a case study on PadSplit.

I purchased a 5 bed , 2.5 bath home in March of this year and converted it into an 8 bed 3 full bath home.

The home has 3 room types:

1) Shared bath with private entrance (former living room with sliding glass door) that rents for $170 a week

2) Shared bath bedroom that rents for $150 a week

3) master bedroom that rents for $200 a week

I also rent out garage parking for $25 a week.

Parking is handled in a few ways, by having a corner lot, by having. Home in an area with abundant street parking such as across from a cemetery, or by turning your Packard into parking with "minimalist landscaping" or paving.

In order to account for all costs including PITI, utilities, cleaner, landscaper, maintenance, etc you want to have 6+ bedrooms but really not much more than 9 though I have heard of some with 10+ units. I have actually started looking to possibly build duplexes with 6 bedrooms per size rather than a single family with this many tenants.

Padsplit does manage the drama, they deal with the people. What you need to do as the home owner is manage the place which yes it will wear out faster but your cashflow is 10x that of what you would expect of a sfh, at least in my case it is. If you want a more passive experience there are property services companies you can find as partners on padsplit's website under vendors. They will take care of the place for you.

If you start thinking of getting into padsplit, one metric is $30k per bedroom. Plenty of hosts state this is their target all in price for a home including aquisition, rehab, and the slight furnishing (bed, mattress, bed cover, lamp, side table, place for clothes if there is no closet) you have to have.

@Lauren Cutchen

Lauren,

I have a PadSplit in Houston I can help you with anything.

My PadSplit is 8 rooms pulling in $5500'ish in revenue. I have met and managed much of what you are asking about and I routinely have discussions with the PadSplit team here in Houston.

Give me a call, heck I am free now.

@Anita Morrish

I am in the process of a new build in Conroe Texas. I bought the land 15% down and now I am working through the city to get the site plan approved. It is taking forever, 9 months so far for site plan development, meetings, and awaiting final approval stamp.

Once this is completed I will be putting 5 duplexes on this property in two phases. Phase 1 has two duplexes and all of the utilities being installed and phase 2 will have the remaining homes put up.

We'll be using modular construction for the duplexes from modularhomesofamerica.com

Homes will be 3 bed, 2 bath with large yards as the property is adjacent to a school system and we want to attract families.

All in it will cost about $1.5 million and will be valued at 2.2-2.6 million depending on cap rates and where we stabilize at.

We are designing the entire project to be investor friendly from interior design to landscaping.

Once it is built we will cashflow a few thousand and may decide to sell depending on the market.

Happy to discuss more if you want to reach out

All,

I hear the concerns about short term rental arbitrage and the local ordinances and neighborhood feelings, what about "rent by the room" arbritage?

To advance cashflow in order to continue funding our own personal aquisitions my partner and I are looking at running this model:

We identify single family homes on the rental market, offer the owner to sign us with a multi-year master lease, we then rent out by the room on longer term leases to sub-tenants.

To the home owner part of our pitch is, we will take care of all maintenance, capital expense is still on the home owner but they won't need to worry about talking to any tenants. This addresses issues they may have with perceptions that more people equals more problems.

We conduct monthly walk through a of the public areas, as part of our monthly cleaning service and will send photos of the home monthly as well as a maintenance log to the owner. This is greater access and property awareness then landlord's generally have when rented to a single family.

In the end, the owner gets less hassle for their rental, more information on on going condition, a longer term lease..

I glossed over some finer details such as various levels of furnishings for the rooms to boost rent, out clause option in the contract with a penalty in case we end up in a bad area/situation, our sub-tenant background/credit check process, and a few other points but that is the gist...

Thoughts?

@Robert Haney

I have seen a few homes in the area that have earthen ramps and elevated parking. Others (Wife forced me to drive her a few places during Imelda when it wasn't so bad out) seem to park their cars on the streets which in some cases were higher than the surrounding land. Cars probably still flooded though.

At the time I was posting this I'd thought the packed earth ramps and elevated parking (up about 2 feet over surrounding land) seemed like a decent compromise. Cars would still flood on occasion I'd assume, but it would give people a fighting chance and show insurance they had at least tried to save the cars.

Is anybody in Houston running with a rent by the room strategy for one or more homes?

How is that going for you?

I have a home I'll be closing on in about a month and exploring the rent by the room strategy.

About what are you seeing in rent for a room with an attached bath, a room with shared bath, garage room?

Are you just utilizing the original bedrooms or do you convert the living room/dining/study etc into additional bedrooms?

Leaving any communal space or just the kitchen?

Is anybody working with Padsplit? I know they are new to Houston but not sure if anybody is up and running with them here as of yet. Any alternatives that focus on room rental or are you managing yourselves?

Thanks!

@Scott Sprague I've sat in on the presentations those on this thread have referenced. What I see is a lot of hype but nothing concrete. No solid plans, timelines, pricing, etc... At this time I would say no S2A is not a player. I do like that they continue to get messaging out about modular because a big issue is financing and maybe if enough get some education then overall life gets easier from that perspective. However if they do fall on their face that could have a chilling effect as well.

There are plenty of players out there though. You could replicate everything that S2A is touting with another builder channel.

@Branden Bestgen

You have managed to 1031 into a new build? I have been looking at that a little but from what I was understanding it wasn't allowed/couldn't be done. I would really like to learn more from you on that if possible

I am in the same boat, although very much newer to the field. I am contracting to build out 5 modular duplexes on a lot, just finished getting my ducks in a row on the site improvements and utilities. Once I sign on the dotted line in January my first duplexes should be up and rentable in March/April. I am doing this in two phases so I can first prove out the model to some potential investors and then complete phase 2 and from there the intent it to build out several more modular duplex communities.

Financing is going to be great from a draw perspective. While I will have an initial draw to pay for the site improvements including foundation, the biggest draw, the house itself isn't pulled until the home is completely built at factory and ready for delivery. Once installed and buttoned up and connected to utilities the third draw is paid out.

Effectively to me this means that I almost don't care about the interest for the construction loan. The time period for the majority of the dollars (home itself) between draw to refinance to perm is so short it doesn't matter much.

White my goal being 100 units of quality newer build in 3 year across several cities for greater security I have found modular multifamily to be a great play.

That said, I have yet to complete my first one, before this my experience is 1 long term rental and 1 flip so... Maybe I will fall on my face but the numbers and process seem to work out at least for multifamily. I can't get the numbers to work out for modular single family homes, not when my competition is developers that have complete vertical integration and the cost efficiencies of scale.